Which of the following is true for the equilibrium rate of exchange?
Answers
Answer:
The equilibrium exchange rate determined in the foreign exchange market is determined by the flexible rate of exchange.Flexible rate of exchange is the rate which is determined by the supply-demand forces in the foreign exchange market. It is also called 'free exchange rate' as it is determined by the free play of supply and demand forces in the international money market. Thus, equilibrium exchange rate is determined when the demand and supply for foreign exchange becomes equal.
Explanation:
true
Answer:
Concept:
Equilibrium rate of exchange is determined where demand for foreign exchange is equal to supply of foreign exchange. It can also be studied in terms of the demand and supply parameters of domestic currency in the foreign market.
Find:
Which of the following is true for the equilibrium rate of exchange?
Given:
equilibrium rate of exchange
Explanation:
• Equilibrium rate of exchange is determined where demand for foreign exchange is equal to supply of foreign exchange. It can also be studied in terms of the demand and supply parameters of domestic currency in the foreign market.
• The exchange rate of any currency refers to the rate at which it can be exchanged for U.S. dollars, unless specified otherwise.
• Like any other product sold in markets, the price of a currency is determined by the demand for that currency relative to supply.
• At any point in time, a currency should exhibit the price at which the demand for that currency is equal to supply, and this represents the equilibrium exchange rate.
• Off course, conditions can change over time, causing the supply or demand for a given currency to adjust, and thereby causing movement in the currency's price.
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